Let’s say you have P25,000 saved up at the bank. You want to increase your savings by making investments, but you're feeling a bit cautious about where you put your money. Low-risk investments tend to give low returns, while high-risk investments, of course, give higher ones. It is easier for young people to grow their savings faster by taking higher risk investments; they will have the time to make up for any wrong decisions made. The elder can no longer afford to take risks.

As a general rule, older investors choose low-risk investments. When younger investors choose to go low risk, it is usually to balance their portfolio. Whether you’re young or old, however, if you’re a person who prefers to make cautious investments, going for those that are low risk would be the better choice for you. If you don’t know where to start, here are three low-risk things you can invest in.

Government securities (GS) are certificates of indebtedness with a promised yield issued and backed up fully by the national government. It is the safest investment instrument as well as the most liquid; you can sell it at any time, and there are always buyers. Philippine GS usually come in the form of treasury bills (T-bills) and treasury bonds (T-bonds).

1. T-bills

T-bills are certificates of indebtedness that mature within one year or less (tenures: 91-day, 182-day, and 364-day). GS are the ideal investments for Filipinos who do not have to use their savings for three to five years. However, while they provide better returns than bank deposits, the minimum investment required is P100,000 to P200,000. If you cannot afford this, consider investing in the Retail Treasury Bills/Bond (RTB) program.

2. Retail Treasury Bills/Bonds

RTBs are offered by the government as a GS-like instrument to investors in units of P5,000. RTBs are also considered GS, but are only offered once in a while. They are almost always immediately sold out. Make arrangements with your bank so that you can be given RTBs when they are available.

3. T-bonds

T-bonds are certificates of indebtedness that mature beyond one year (tenures: 2, 5, 7, 10, 15, 20, and 25 years). They are issued to raise funds for specific projects. T-bonds offer a fixed amount of interest (the coupon rate) for a fixed period (the maturity date). Upon maturity, the exact amount of the bond will be repaid to you and the interest payment stops. Interest rates on bonds are usually higher than the rates paid by banks. If you don’t need to earn money right away, bonds will give you the greatest return without too much risk. In fact, if your goal is to “never lose any money,” then a bond from a stable government is your best investment.

As a rule, long-term bonds produce interest rates that are higher than inflation. Bonds that have terms beyond 10 years generally give yields higher than 9 to 10 percent per year, depending on the economy. This is higher than any expected average inflation rate over the long term.

Based on history, stocks outperform bonds in the long run. However, bonds outperform stocks at certain times in the economic cycle. If all your money is invested in stocks and you need cash when the stock market is down, you may have a big problem. Putting a part of your savings in bonds will give you a more stable investment portfolio.

With bonds, you can predict your investment earnings and determine the amount you have to save to achieve your financial goal. Bonds are traded directly through dealers (usually financial institutions); they can explain the calculations of current bond prices and their yields. Or get them indirectly through Mutual Funds, which invest in bonds.

For more on making investments, check these out on FN:

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(First published in Good Housekeeping, Good Money section as “Low-Risk Investments,” an entry in the Money Wisdom column, in June 2009; adapted for use in Female Network; photo source: sxc.hu)

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